The single piece of formal IRS guidance on non-fungible tokens is Notice 2023-27, issued in March 2023. The notice does two things: it announces that the Treasury and IRS intend to issue guidance on the treatment of certain NFTs as "collectibles" within the meaning of 26 U.S. Code section 408(m), and it sets out a "look-through analysis" the agencies plan to use until that guidance is finalised.
The look-through analysis works like this: an NFT is treated as a collectible if its associated right or asset would itself be a collectible. An NFT representing ownership of a physical artwork looks through to a collectible (artworks are explicitly listed in section 408(m)(2)). An NFT representing ownership of a parcel of digital land in a virtual world does not look through to a section 408(m) item and is therefore not a collectible.
The reason this matters: long-term capital gains on collectibles are taxed at a maximum rate of 28 percent, compared to the normal long-term rates of 0 / 15 / 20 percent. For a high-bracket taxpayer, the difference between collectible treatment and ordinary long-term capital gains treatment on the same NFT is up to 8 percentage points of additional tax.
What the look-through actually catches
Reading the notice carefully and applying the look-through to the most common categories of NFT seen in retail wallets:
| NFT category | Look-through asset | Likely treatment |
|---|---|---|
| Profile-picture (PFP) collection (e.g. art-style avatars) | Digital artwork | Collectible (28% max rate) |
| Generative art (e.g. Art Blocks) | Digital artwork | Collectible (28% max rate) |
| 1/1 digital art | Digital artwork | Collectible (28% max rate) |
| Music NFT (royalty stream) | Sound recording (and royalty contract) | Mixed; collectible portion + ordinary income on royalties |
| Virtual land | Software access right | Not a collectible; standard LTCG rates |
| In-game items (sword, character) | Software licence | Not a collectible; standard LTCG rates |
| Membership pass / DAO token | Service access right | Not a collectible; standard LTCG rates |
| Tokenised real-world asset (real estate, wine) | The underlying RWA | Look through to the asset; usually not a collectible |
The categorisation in the table is the IRS’s preliminary guidance, not the finalised rule. The notice asked for public comments by June 2023; the comment period closed on schedule but no final regulation has been issued as of early 2026.
Where the look-through gets ambiguous
Three categories of NFT do not fit cleanly into the look-through framework, and these are where retail filers most commonly get conflicting advice:
PFPs that grant utility. A profile-picture NFT that also gives the holder access to a private members’ channel or future airdrops has both an artwork component and a service component. The notice does not address how to apportion. The defensible filing position is to treat the entire holding as a collectible (the more conservative outcome) unless the issuer documents the artwork value as a small fraction of the total.
Bundled metadata. An NFT whose JSON metadata points to off-chain content that has changed since mint (for example, an artwork hosted on a centralised server that the issuer can replace) raises the question of what the "associated asset" actually is. The conservative position is to treat the look-through as fixed at the time of acquisition.
Fractionalised NFTs. A token representing 1/1000th of a single high-value digital artwork is a partnership-style claim on the underlying. The IRS has not addressed the fractionalisation question; the position taken by most US tax practitioners is to look through to the underlying NFT, which then looks through to the underlying artwork.
The four numbers a retail NFT investor needs to track
- Mint cost in USD. The price paid to mint, including the gas fee in ETH converted to USD at the spot price at the time of the mint transaction.
- Royalty paid to creator on each secondary sale. The creator royalty (typically 5 to 10 percent) reduces the proceeds for the seller. This needs to be documented per sale, not estimated.
- Marketplace fee. OpenSea, Blur, Magic Eden and the rest charge a marketplace fee. Like the royalty, this reduces proceeds.
- Whether the holding period clock resets on a wrap. Wrapping an NFT into a vault token (for example, fractionalising) is a property-for-property exchange and starts a new holding period for the wrapped token. This is one of the most common errors in retail NFT filing.
What to actually do for the 2026 tax year
Two filing positions are defensible while the rule remains unfinalised:
Position 1 (conservative). Treat any NFT whose primary function is artistic display as a collectible, and apply the 28 percent maximum long-term rate. This produces a higher tax bill and is the position the IRS will accept without question.
Position 2 (look-through, per the notice). Apply the look-through analysis case by case, and treat utility-only NFTs at standard long-term rates. This produces a lower bill and is supported by the notice but not yet by final regulation. Disclosure on Form 8275 is the standard practice when taking a position based on proposed rather than final guidance, and it materially reduces the risk of a substantial-understatement penalty if the eventual final rule disagrees.
For most retail NFT investors with a portfolio in the low five figures, the difference between the two positions is small in dollar terms and the conservative position is probably the right answer for the simplicity alone. For a high-bracket investor with substantial 1/1 digital art in long-term gain, the look-through position can save thousands of dollars per disposal, and the Form 8275 disclosure cost is minimal.
Our Crypto Tax Calculator tags NFT disposals as "collectible" or "non-collectible" based on a simple heuristic at upload time, and the user can override per-token. The exported report flags any disposal where the user took the look-through position so the preparer can attach a Form 8275 if desired. Until the IRS finalises the rule, that level of optionality is the most useful thing tax software can offer in this category.